(Dow Jones) While health authorities cope with swine flu, Erik Davidson says financial advisors are dealing with a different kind of epidemic among their clients: Gold fever.

Davidson, who is Wells Fargo Private Bank's managing director of investments in the western U.S., says his staff gets some kind of gold inquiry almost daily, a big change from a year ago. More and more clients ask about putting 10% or more of their portfolios in gold, and one considered 40%, he says.

"We've got to talk with them about curbing their enthusiasm a bit," he says.

Davidson oversees portfolio managers with $80 billion in assets under management from high-net-worth clients, each of whom hold at least $1 million in investments. He considers gold a good investment, but not in disproportionate quantities. It provides a shelter in the event of financial upheaval and is a good hedge against inflation.

"We're not gold bears by any stretch of the imagination, because we get the concerns and fears that are out there," he said. "But we really try to steer our clients toward the importance of looking at gold within the context of diversification."

Davidson has long advocated the inclusion of commodities in a portfolio along with stocks, bonds and real estate. He also suggests diversification within commodities to include other metals, energy and agriculture. He suggests total commodities exposure of around 5% of a portfolio, although some investors might ramp it up to 10%.

Many clients want to buy and hold the metal itself, but Davidson says they need to consider issues such as storage costs and security. Even within gold, he suggests diversification to include exchange-traded funds and gold-oriented mutual funds.

Davidson says he welcomes the clients' calls, which he sees as an opportunity to discuss their concerns and to reinforce the importance of a balanced portfolio.

"It is a great conversation piece to talk about the underlying motivation," he says. This is usually either fear of financial markets collapsing or else a desire to chase "past performance" since gold is faring well.

Just because gold's price has quadrupled during this decade does not mean it will again, Davidson cautions. He also notes that, as an investment, it does not have the income-producing potential that stocks, bonds and real estate do. As he puts it, gold is simply not an investment with which to take an "all in" or "all out" approach.


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